Ratan Tata's Gameplan for the 90s
Business World — April 1991

Today, with success already behind it, Tata Industries has to make a conscious effort to build up an adequate body of managerial talent. This is likely to be important in order to sustain growth, and the plan document attempts a discussion on the subject.

As Ratan Tata steps into JRD's shoes he has his route map ready. It is a gameplan for growth-Ratan Tata's course map for the nineties. And, as a strategic blueprint for his clutch of companies - a plan evolved by some of the best brains of the country-it promises to become an economic document of our times.

The 1983 Tata plan, the first such Ratan Tata exercise, was possibly such a document. With hindsight, what is most apparent is its remarkable prescience in predicting India's industrial trends in the eighties.

Thus, when Ratan Tata undertook a fresh planning exercise in the second half of 1989, it generated a lot of expectation. There was reason to believe that when the report took final shape, it would be just as much of a crystal ball for the nineties as the earlier document was for the past decade. Recently circulated among the directors of Tata Industries, the version, prepared by Raju Bhinge, one of the bright backroom boys in Ratan Tata's office, might well live up to expectations.

The character of the second edition is, however, rather different from the first. " Last time, we were starting on a fresh new slate," says Tata. "We were looking at completely new areas not yet open to the private sector, and emerging technologies. In the course of the past seven years, some distance has been traversed. Today, we are looking a little deeper, perhaps, at the same areas which had been covered the last time - for example, electronics or biotechnology. And also, the focus is on assessing the scenario-areas where it is felt that existing trends will gather pace and continue. It is not compulsory that a strategic exercise must break new ground each time. I feel that the current exercise has been just as much worthwhile and necessary as the last one."

But Raju Bhinge, the proud author, would much rather hide his light under a bushel, preferring to talk about the nitty-gritty part of his document only in broad, general terms. "There is an element of corporate secrecy involved," he pleads. "We would not like competitors to really know about our conclusions and about our long-term plans. If the report became public knowledge, other business groups would have for free what we have laboriously put together after a lot of research. They would also be pre-warned about what we want to do or not do."

Bhinge, however, is much more forthcoming in describing the process of the exercise and the first thing that he explains is why completing the report took much more time than originally envisaged. When Bhinge and his team started on the job, a few months before the 1989 elections, the world was a rather different place. The accepted wisdom was that Rajiv Gandhi would squeak through. Events turned out otherwise and, for a while, the exercise was put on hold till the Janata Dal government at New Delhi showed some semblance of stability.

Since then, of course, V.P. Singh's ministry has been relegated to history, and Mandal, mandir and Saddam Hussein have all jostled for space on the front pages of newspapers. With so much uncertainty, is not a plan for the future rather like building on quicksand?

Bhinge disagrees. "The consensus reached by our group is that irrespective of whichever political party comes to power at New Delhi, the compulsions are such that options are limited," he says." In the short term there may be either a speeding up or slowing down towards the directions that we foresee, but the long-term trends are inevitable."

Of course, any such exercise must discount catastrophic changes. But Bhinge assumes a certain degree of continuity and feels that there will remain a movement in India towards delicensing, deregulation and liberalisation. Then again, there cannot be an indefinite clamping down on imports, since industries remain dependent on overseas sourcing of raw materials, intermediate products, or capital goods in order to export. Therefore it would be necessary to have an emphasis on export growth rather than import restrictions.

What follows from this is that there will, in the long run, be a greater opening up of the economy, which in turn means that the Indian corporate sector will have to look at international competitiveness. Since the Tatas are the one Indian business group with size and speed significant enough to make sense in international terms, it is clear why Ratan Tata would like the assessment of global competitiveness to remain a touchstone for Tata companies.

Bhinge goes on to describe the scope of the report. "The first important point of dissimilarity from the 1983 exercise is that we made absolutely no attempt to look at the Tata group as a whole, but confined ourselves only to Tata Industries," he says. "Last time, the strategic plan had looked at each of the business areas the Tatas were in and had outlined possible directions. Broadly, it so happens that the larger companies have followed the course predicted, but greater group synergy could perhaps have been achieved. The only part of the 1983 effort which has consciously and consistently been acted upon was the section on hi-tech possibilities, in other words, that involving Tata Industries."

What Bhinge is saying in diplomatic language is that the chiefs of the larger Tata companies (the well-known "satraps") did not welcome any (so-called) encroachment on their autonomy last time. And in the fresh exercise, any such danger of "treading on toes" was avoided by confining the exercise to Tata Industries and its promoted companies.

Final Arbiter
At the first stage, a core group together with sub-groups and committees were formed. The core or "guiding" group consisted of some senior Tata directors, and the task of this group was to act as final arbiter and jury in the entire exercise. Each of the three sub-committees was also chaired by a senior director - Freddie Mehta, Naushir Soonawala and Ratan Tata himself. In this way, the participation of the best economists, financial brains and technology scanners from the Tata group was ensured. Outside management consultant S.K. Bhattacharya was also involved in the exercise.

Apart from surveying the political and economic environment, an important question that was seriously addressed was whether, seven years down the line, the "hi-tech" mission for Tata Industries still applied. The answer was an unequivocal "yes," and in part this was because of its proven success in the field.

However there were certain other reasons as well. "Tata Industries has an unusual mandate," says N. Srinath executive assistant to Ratan Tata. "It does not have a core business. Rather, its business is to create core businesses. Moreover it must not conflict with other Tata companies' activities. Therefore, it really has the need to be extra careful in its decisions."

Using these criteria, "hi-tech" is (and has been) the best answer. In international terms, India might still be a backwater both in technological as well as commercial practices, but the increasingly accelerated pace of change in advanced economies is certainly having an effect here. The business prospects of hi-tech in this country can never be super-profits because of restricted demand low scale of operations, high cost of capital, and in some cases (though not in most) high capital intensity.

On the other hand, steady returns are always ensured, and there is good commercial sense in entering the field. When all these considerations are combined with Ratan Tata's deep and continuing interest in technology and his desire that the Tatas should retain technological leadership, it is easy to understand why Tata Industries has made hi-tech its chosen vehicle.
And success is apparent, most clearly evidenced by the financial data. Composite figures for the six companies-Tata Keltron, Tata Telecom, Hitech Drilling, Tata Finance, Tata Industrial Finance and Tata Honeywell-indicate that while combined sales of all these companies for 1989-90 was about Rs. 75 crores, the corresponding figure for the half-year to September 1990 was Rs. 44 crores. In other words, sales are growing at a good clip. Profits are expected to keep pace the total for 1989-90 was Rs. 3.05 crores, while the half-yearly figure up to September 1990 was Rs. 2.38 crores. Cash generation for the half year at Rs. 10 crores is already ahead of the annual 1989-90 figure of Rs. 7.10 crores.

No Surprises
Such results have caused no surprises. Says Ratan Tata : "A reason why we undertook the strategic planning exercise at this juncture is that all the earlier projects have now gone on stream, and it is time to look for new opportunities. We now have the credibility to go back to the Tata Industries' shareholders-there are now no longer endless requests for money."

Bhinge, Srinath and their colleagues would like to be intentionally vague about what specific opportunities are being looked, at but are forthcoming enough when talking in general terms. Some of the areas which hold special interest for them are biotechnology (its applications in agriculture), healthcare and of course, electronics.

In this last area, the existing companies are planning further significant investment, but in healthcare, there has been a conscious attempt to make the existing three Tata companies (Rallis, Merind and Tata Pharmaceuticals) work in greater concert. And, as far as agriculture is concerned, the national compulsion to invest 50percent of plan expenditure in this area makes Bhinge feel confident that significant opportunities for technology application will always exist.

Certain interesting possibilities may have to be passed on to existing Tata companies. For example, in engineering plastics, a stand-alone unit makes less sense than one which is part of Haldia Petrochemicals. Again, ceramics have the best fit with the refractory units which are part of Tata Steel at Jamshedpur. Anything to do with the automotive sector is best undertaken by Telco. And in energy management where Tata Consulting Engineers (TCE), Tata Consultancy Services (TCS) and Tata Energy Research Institute are all making separate efforts, there could be a commercial possibility in evolving turnkey packages for target groups.
But a specific new project which is already underway is for the manufacture of various products utilising advanced materials and composites. The new company, Matrix Materials, has been floated with (so far) a share capital of Rs. 60 lakhs and the Rs. 12-15 crores installation to make armour products (bulletproof jackets etc.) and helmets is already under construction at Bangalore. An original collaboration between Tatas and BP Advanced Materials (part of the British Petroleum (BP) group in the UK) fell through after BP decided to dispose of this division. The new collaboration is with SNPE, France, manufacturer of the Mirage aircraft.

Ambitious Expansion
In the meanwhile, the existing companies in the Tata Industries stable are on an ambitious expansion spree, all of which the Nineties Plan take into account. Hitech Drilling already has two installations a 300 ft offshore drilling rig and a semi-submersible production facility and proposes to acquire another 300 ft rig. Two new contracts from the Oil and Natural Gas Commission are in hand, in which reasonable margins are expected.

Tata Honeywell came out of the red in 1989-90 and is expected to do even better financially after the launch of its Series 9000 systems to address the requirements of small control applications. And Tata Finance has just gone public with a Rs. 7.5 crores issue of equity and convertible preference shares, which will take its capital to Rs. 10 crores.

Tata Finance may issue more shares to the public in the next few years since, under the Monopolies and Restrictive Trade Practices (MRTP) Act guidelines, its capital should reach Rs. 20 crores in the next three years or so with 60percent public holding For the time being, the target is to expand business from the Rs. 35 crores level in the current year to about Rs. 60 crores in the next year-and-a-half.

The mainstay of Tata Finance will be hire-purchase business in Telco trucks: Consumer durables may be another promising area, but Tata Finance managing director Partha Sarkar (and author of the 1983 Tata Plan), sees considerable scope in the nineties for merchant banking, treasury management, big ticket leasing and hire-purchase, or even unconventional financing. Tata Finance itself may not undertake all of these, but its sister company, Tata Industrial Finance, might well do so. Financial services, clearly, will be another thrust area in strategic planning for the nineties.

As far as electronics is concerned, an exciting prospect is held out by Tata Elxsi, Singapore, sourcing manufacture of parts for its super mini-computers which can be manufactured competitively in this country from a separate, associate venture here. And in telecom, the Memorandum of Understanding (MoU) between Tata Industries and AT and T for the manufacture of Main Automatic Exchanges (MAXs) could be a long shot which, if successful, would bring great opportunities.

So far, the MoU is a mere insurance policy for the giant transnational and everything depends on whether the Indian government allows private companies to manufacture MAXs. The existing telecom companies are, of course, broadening their activities-Tata Telecom will manufacture digital UHF (ultra high frequency) equipment up to 30 channels, and Tata Keltron has started production of telephone answering machine, cordless phones and feature phones. Both companies are spinning money.

The strategic alliance between Peico (better known as Philips) and the Tatas is a matter to which the current plan has given some importance, simply because possibilities are immense. Much depends, perhaps, on what Philips Holland really wants to do in India. For the time being, Nelco is front-ending the Tata side, and is taking about dovetailing their television manufacture facilities, and arrangements may be crystallised soon. But, according to Bhinge and others, the Tata-Philips alliance could have several more dimensions, which could, given right circumstances, manifest themselves in the course of the nineties.

Speaking about the gradual flowering of the new ventures over the past five years, Ratan Tata says that while the various technical collaborations with well-known companies abroad have all been financially successful, one which has given him immense satisfaction is the tieup with Honeywell. The quality of the partnership, according to him, casts back to Tata-Benz at Telco, which was a high-water mark for Indian industry. Unlike in some of the other cases, Honeywell has a 40percent equity stake in the Indian company. It is in sorting out the initial hiccups at Tata Honeywell that the relationship was really tested and made more durable. The product range had to be adapted to Indian requirements and technical manpower trained. Today, the Company has built up an excellent bank of engineering talent, and claims to have the best and most complete product range in process control equipment.

The 1983 Tata plan had its declared mission to promote hi-tech ventures. This time, according to Bhinge, the emphasis has been broadened - it is to both promote and manage such companies. Today, with success already behind it, Tata Industries has to make a conscious effort to build up an adequate body of managerial talent. This is likely to be important in order to sustain growth, and the plan document attempts a discussion on the subject.

The best elixir at Tata Industries today is the success in following through the plan for the eighties. Currently, as the Nineties Plan gets crystallised, sights have been set higher. The new core businesses have to be nurtured and more such seeds sown. Though Bhinge and his colleagues make no such extravagant claim, it could be that they are really in the process of creating the Tiscos and Telcos of tomorrow.